Form 8-K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):

October 24, 2017

 

 

ZIX CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

Texas   0-17995   75-2216818

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

2711 North Haskell Avenue

Suite 2200, LB 36

Dallas, Texas 75204-2960

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (214) 370-2000

Not Applicable

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

 

 


Item 2.02 Results of Operations and Financial Condition.

On October 24, 2017, Zix Corporation issued a press release announcing financial results for the third quarter ending September 30, 2017. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K. In accordance with General Instruction B.2 of Form 8-K, the information set forth in this Item 2.02 and in the attached Exhibit 99.1 are deemed to be “furnished” and shall not be deemed to be “filed” for purposes of the Securities Exchange Act of 1934, as amended.

 

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

 

Exhibit
No.

  

Description

99.1    Press Release, dated October 24, 2017, titled “Zix Reports Third Quarter and Nine Month 2017 Financial Results”.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

   

ZIX CORPORATION

(Registrant)

Date: October 24, 2017     By:  

/s/ David E. Rockvam

      David E. Rockvam
      Vice President and Chief Financial Officer
EX-99.1

Exhibit 99.1

 

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Zix Reports Third Quarter and Nine Month 2017 Financial Results

ZixProtect and ZixArchive Performing Ahead of Plan, Contributing to a Strong Core Business and Contributing to Healthy New First Year Orders

DALLAS — October 24, 2017 — Zix Corporation (Zix) (NASDAQ: ZIXI), a leader in email security, today announced financial results for the third quarter ended September 30, 2017.

Third Quarter 2017 Financial Highlights (results compared to the same year-ago quarter)

 

    Revenue increased 8% to a record $16.6 million

 

    Annual contract value increased 10% to a record $66.1 million

 

    New first year orders increased 11% to $2.1 million

 

    GAAP net income increased 8% to $1.9 million

 

    GAAP fully diluted earnings per share increased 5% to $0.03

 

    Non-GAAP fully diluted earnings per share increased 5% to $0.07

 

    Adjusted EBITDA increased 7% to $4.6 million

 

    Cash flow from operations increased to a company record $6.7 million

 

    The company ended the quarter with $32.8 million in cash and no debt

Management Commentary

“Following successful launches in the prior quarter, ZixProtect and ZixArchive continued to perform well ahead of our internal plan,” said Dave Wagner, Zix’s Chief Executive Officer. “Our early traction with these solutions has validated the timely rollout of our bundled product suite, when many customers are increasingly seeking more value from fewer vendors. During the quarter, several partner-based accounts fell behind their deployment schedules, and therefore their contributions could not be included in our third quarter revenue results. We also experienced weakness in our customer renewals which was largely driven by customer M&A activity. Our strategic decision to enter into the advanced threat protection and email archiving markets while also strengthening our hosted solution better positions us to mitigate these pressures and drive greater long-term value for our customers.”

Zix’s Chief Financial Officer Dave Rockvam added: “New first year orders during the third quarter increased 11.4% and experienced a solid boost due to the recent introductions of ZixProtect and ZixArchive. We also experienced solid year-over-year revenue growth and achieved record revenue for the 14th quarter in a row. Additionally, we achieved our non-GAAP fully diluted earnings per share guidance of $0.07. Complementing these healthy results was our return to achieving a 28% adjusted

 

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EBITDA margin, which we forecasted in the prior quarter and which is consistent with our long-term model. Looking ahead, we expect similar strong bottom-line results but expect a slight impact to our previously forecasted topline.”

Wagner continued: “We are driven by innovation and our commitment to our customers to provide the very best email security solution possible, which is why we acquired Entelligence Messaging Server (EMS) during the third quarter. The EMS technology will be integrated into our ZixEncrypt roadmap to enhance our end-to-end encryption capabilities, as well as give us more delivery and deployment options and FIPS validated cryptography, which will give us an added edge when marketing to new customers and upselling existing ones. When combined with the portfolio expansion from our Greenview Data acquisition earlier in the year, we believe our enhanced product suite positions us as not only the gold standard in email encryption but in the broader email security market as well.”

Third Quarter 2017 Operational Highlights

 

    Acquired Entelligence Messaging Server business to strengthen Zix’s industry-leading email encryption solutions

 

    Entered into a strategic partnership with Digital Guardian, a next-generation data protection platform, to bring together best-in-class email encryption with enterprise data loss prevention

Third Quarter 2017 Corporate Financial Summary and Other Operational Metrics

 

$ in Millions, except per share data

   Q3 2017    Q3 2016    Change (1)

Revenue

   $16.6    $15.3    8.4%

GAAP Gross Profit

   $13.3    $12.7    5.2%

GAAP Net Income

   $1.9    $1.8    7.7%

GAAP Net Income Per Share – Diluted

   $0.03    $0.03    5.0%

EBITDA (2)

   $3.7    $3.2    16.1%

EBITDA Margin

   22.3%    20.8%    1.5 pt

Non-GAAP Adjusted Gross Profit (3)

   $13.4    $12.7    5.8%

Non-GAAP Adjusted Net Income (3)

   $3.9    $3.6    8.0%

Non-GAAP Adjusted Net Income Per Share – Diluted (3)

   $0.07    $0.07    5.3%

Adjusted EBITDA (3)

   $4.6    $4.3    6.7%

Adjusted EBITDA Margin

   27.7%    28.1%    (0.4 pts)

New First Year Orders

   $2.1    $1.9    11.4%

Total Orders

   $14.3    $16.5    (13.6%)

Backlog (4)

   $75.0    $81.6    (8.2%)

 

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Fiscal Nine Months 2017 Corporate Financial Summary and Other Operational Metrics

 

$ in Millions, except per share data

   YTD 2017    YTD 2016    Change (1)

Revenue

   $48.9    $44.6    9.6%

GAAP Gross Profit

   $39.5    $36.7    7.6%

GAAP Net Income

   $4.8    $3.9    23.6%

GAAP Net Income Per Share – Diluted

   $0.09    $0.07    24.6%

EBITDA (2)

   $10.5    $7.8    33.7%

EBITDA Margin

   21.4%    17.5%    3.9 pts

Non-GAAP Adjusted Gross Profit (3)

   $39.9    $36.9    8.0%

Non-GAAP Adjusted Net Income (3)

   $11.1    $10.3    7.9%

Non-GAAP Adjusted Net Income Per Share – Diluted (3)

   $0.20    $0.19    8.7%

Adjusted EBITDA (3)

   $13.3    $12.3    7.7%

Adjusted EBITDA Margin

   27.2%    27.7%    (0.5 pts)

New First Year Orders

   $6.8    $6.8    (0.0%)

Total Orders

   $44.3    $52.7    (15.9%)

 

(1) Changes are based on actual numbers versus numbers shown in the columns, which may reflect rounding
(2) Adjusted earnings before interest, taxes, depreciation and amortization
(3) A reconciliation of GAAP to non-GAAP adjusted results is included in this press release and available on our investor relations Web page at http://investor.zixcorp.com
(4) Service contract commitments that represent future revenue to be recognized as the services are provided

Financial Outlook

For the fourth quarter 2017, the company forecasts revenue to range between $16.6 million and $16.8 million, representing an increase of 7% to 8% year-over-year. The company forecasts fully diluted GAAP earnings per share to be in a range of $0.02 and $0.03 and fully diluted non-GAAP adjusted earnings per share to be $0.08 for the fourth quarter 2017.

For fiscal year 2017, the company is revising its revenue guidance range to between $65.5 million to $65.7 million, representing an increase of 9% compared to fiscal year 2016. The company forecasts fully diluted GAAP earnings per share to be between $0.10 and $0.12 and reiterates its fully diluted non-GAAP adjusted earnings per share guidance of $0.28 for fiscal year 2017.

 

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Conference Call Information

Management will discuss these financial results and outlook on a conference call today (October 24, 2017) at 5:00 p.m. ET (2:00 p.m. PT).

A live webcast of the conference call will be available in the investor section of Zix’s website here. Alternatively, participants can access the conference call by dialing 1-855-853-6940 (U.S. toll-free) or 1-720-634-2906 (international) at least 15 minutes before the call and entering access code 93297452. If you have any difficulty connecting with the conference call, please contact Liolios Group at 1-949-574-3860.

An audio replay of the conference will be available for seven days, by dialing 1-855-859-2056 (U.S. toll-free) or 1-404-537-3406 (international) and entering the access code 93297452. An archive of the webcast will also be available on the Zix investor relations Web site.

About Zix Corporation

Zix Corporation (Zix) is a leader in email security. Trusted by the nation’s most influential institutions in healthcare, finance and government, Zix delivers a superior experience and easy-to-use solutions for email encryption and data loss prevention, advanced threat protection, archiving and bring your own device (BYOD) mobile security. Focusing on the protection of business communication, Zix enables its customers to better secure data and meet compliance needs. Zix is publicly traded on the Nasdaq Global Market under the symbol ZIXI. For more information, visit www.zixcorp.com.

###

 

Zix Company Contact

Taylor Johnson

(214) 370-2134

tjohnson@zixcorp.com

 

Zix Investor Contact

Matt Glover and Najim Mostamand, CFA

Liolios Group, Inc.

(949) 574-3860

ZIXI@liolios.com

Statements in this release that are not purely historical facts or that necessarily depend upon future events, including statements about forecasts of sales, revenue or earnings, potential benefits of strategic relationships, or other statements about anticipations, beliefs, expectations, hopes, intentions or strategies for the future, may be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. Readers are cautioned not to place undue reliance on forward-looking

 

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statements. All forward-looking statements are based upon information available to Zix on the date this release was issued. Zix undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Any forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements, including risks or uncertainties related to market acceptance of new Zix solutions and how privacy and data security laws may affect demand for Zix email data protection solutions. Zix may not succeed in addressing these and other risks. Further information regarding factors that could affect Zix financial and other results can be found in the risk factors section of Zix’s most recent filing on Form 10-K with the Securities and Exchange Commission.

 

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ZIX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

 

     September 30,
2017
(unaudited)
     December 31,
2016
 

ASSETS

     

Current assets:

     

Cash and cash equivalents

   $ 32,760,000      $ 26,457,000  

Receivables, net

     1,235,000        1,209,000  

Prepaid and other current assets

     3,039,000        2,829,000  
  

 

 

    

 

 

 

Total current assets

     37,034,000        30,495,000  

Property and equipment, net

     4,175,000        3,976,000  

Intangible Assets, Net

     4,828,000        —    

Goodwill

     8,420,000        2,161,000  

Deferred tax assets

     40,901,000        45,726,000  
  

 

 

    

 

 

 

Total assets

   $ 95,358,000      $ 82,358,000  
  

 

 

    

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

     

Current liabilities:

     

Accounts payable and accrued expenses

   $ 5,443,000      $ 4,720,000  

Deferred revenue

     28,543,000        25,773,000  
  

 

 

    

 

 

 

Total current liabilities

     33,986,000        30,493,000  

Long-term liabilities:

     

Deferred revenue

     1,912,000        1,448,000  

Deferred rent

     1,230,000        1,347,000  
  

 

 

    

 

 

 

Total long-term liabilities

     3,142,000        2,795,000  
  

 

 

    

 

 

 

Total liabilities

     37,128,000        33,288,000  

Total stockholders’ equity

     58,230,000        49,070,000  
  

 

 

    

 

 

 

Total liabilities and stockholders’ equity

   $ 95,358,000      $ 82,358,000  
  

 

 

    

 

 

 


ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

     Three Months Ended September 30,     Nine Months Ended September 30,  
     2017     2016     2017     2016  

Revenue

   $ 16,592,000     $ 15,308,000     $ 48,863,000     $ 44,566,000  

Cost of revenue

     3,272,000       2,652,000       9,342,000       7,824,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     13,320,000       12,656,000       39,521,000       36,742,000  

Operating expenses:

        

Research and development

     2,916,000       2,619,000       8,047,000       7,118,000  

Selling, general and administrative

     7,514,000       7,484,000       23,282,000       23,656,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     10,430,000       10,103,000       31,329,000       30,774,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     2,890,000       2,553,000       8,192,000       5,968,000  

Operating margin

     17     17     17     13

Other income, net

     86,000       74,000       230,000       183,000  

Income before income taxes

     2,976,000       2,627,000       8,422,000       6,151,000  

Income tax expense

     (1,070,000     (858,000     (3,603,000     (2,252,000
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 1,906,000     $ 1,769,000     $ 4,819,000     $ 3,899,000  
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic income per common share:

   $ 0.04     $ 0.03     $ 0.09     $ 0.07  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted income per common share:

   $ 0.03     $ 0.03     $ 0.09     $ 0.07  
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in per share calculation - basic

     53,786,876       52,714,544       53,443,749       54,157,050  
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in per share calculation - diluted

     54,631,407       53,262,075       54,263,258       54,699,207  
  

 

 

   

 

 

   

 

 

   

 

 

 


ZIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Nine Months Ended September 30,  
     2017     2016  

Operating activities:

    

Net income

   $ 4,819,000     $ 3,899,000  

Non-cash items in net income

     7,262,000       5,053,000  

Changes in operating assets and liabilities

     1,903,000       4,272,000  
  

 

 

   

 

 

 

Net cash provided by operating activities

     13,984,000       13,224,000  

Investing activities:

    

Purchases of property and equipment

     (1,754,000     (1,772,000

Acquisition of business, net of cash acquired

     (8,245,000     —    
  

 

 

   

 

 

 

Net cash used in investing activities

     (9,999,000     (1,772,000

Financing activities:

    

Proceeds from exercise of stock options

     4,198,000       155,000  

Purchase of Treasury Stock

     (1,880,000     (15,499,000
  

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     2,318,000       (15,344,000
  

 

 

   

 

 

 

Increase (Decrease) in cash and cash equivalents

     6,303,000       (3,892,000

Cash and cash equivalents, beginning of period

     26,457,000       28,664,000  
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 32,760,000     $ 24,772,000  
  

 

 

   

 

 

 


ZIX CORPORATION

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(Unaudited)

 

         Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
         2017     2016     2017     2016  

Revenue:

          

GAAP revenue

     $ 16,592,000     $ 15,308,000     $ 48,863,000     $ 44,566,000  
    

 

 

   

 

 

   

 

 

   

 

 

 

Cost of revenue

          

GAAP cost of revenue

     $ 3,272,000     $ 2,652,000     $ 9,342,000     $ 7,824,000  

Stock-based compensation charges (1)

   (A)     (78,000     (55,000     (226,000     (171,000

Strategic consulting and litigation costs (2)

   (B)     (1,000     —         (3,000     —    

Intangible Amortization (3)

   (C)     (50,000     —         (100,000     —    
    

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP adjusted cost of revenue

     $ 3,143,000     $ 2,597,000     $ 9,013,000     $ 7,653,000  
    

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit:

          

GAAP gross profit

     $ 13,320,000     $ 12,656,000     $ 39,521,000     $ 36,742,000  

Stock-based compensation charges (1)

   (A)     78,000       55,000       226,000       171,000  

Strategic consulting and litigation costs (2)

   (B)     1,000       —         3,000       —    

Intangible Amortization (3)

   (C)     50,000       —         100,000       —    
    

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP adjusted gross profit

     $ 13,449,000     $ 12,711,000     $ 39,850,000     $ 36,913,000  
    

 

 

   

 

 

   

 

 

   

 

 

 

Research and development expense

          

GAAP research and development expense

     $ 2,916,000     $ 2,619,000     $ 8,047,000     $ 7,118,000  

Stock-based compensation charges (1)

   (A)     (98,000     (63,000     (276,000     (215,000

Strategic consulting and litigation costs (2)

   (B)     (52,000     —         (55,000     —    
    

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP adjusted research and development expense

     $ 2,766,000     $ 2,556,000     $ 7,716,000     $ 6,903,000  
    

 

 

   

 

 

   

 

 

   

 

 

 

Selling and marketing expense

          

GAAP selling and marketing expense

     $ 4,852,000     $ 4,705,000     $ 15,247,000     $ 14,197,000  

Stock-based compensation charges (1)

   (A)     (234,000     (156,000     (670,000     (460,000

Strategic consulting and litigation costs (2)

   (B)     (1,000     —         (2,000     —    

Intangible Amortization (3)

   (C)     (57,000     —         (113,000     —    
    

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP adjusted selling and marketing expense

     $ 4,560,000     $ 4,549,000     $ 14,462,000     $ 13,737,000  
    

 

 

   

 

 

   

 

 

   

 

 

 

General and administrative expense

          

GAAP general and administrative expense

     $ 2,662,000     $ 2,779,000     $ 8,035,000     $ 9,459,000  

Stock-based compensation charges (1)

   (A)     (334,000     (177,000     (851,000     (687,000

Strategic consulting and litigation costs (2)

   (B)     (90,000     (664,000     (760,000     (2,636,000

Corporate separation payment (4)

   (D)     —         —         (3,000     (358,000
    

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP adjusted general and administrative expense

     $ 2,238,000     $ 1,938,000     $ 6,421,000     $ 5,778,000  
    

 

 

   

 

 

   

 

 

   

 

 

 

Operating income:

          

GAAP operating income

     $ 2,890,000     $ 2,553,000     $ 8,192,000     $ 5,968,000  

Stock-based compensation charges (1)

   (A)     744,000       451,000       2,023,000       1,533,000  

Strategic consulting and litigation costs (2)

   (B)     144,000       664,000       820,000       2,636,000  

Intangible Amortization (3)

   (C)     107,000       —         213,000       —    

Corporate separation payment (4)

   (D)     —         —         3,000       358,000  
    

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP adjusted operating income

     $ 3,885,000     $ 3,668,000     $ 11,251,000     $ 10,495,000  
    

 

 

   

 

 

   

 

 

   

 

 

 
                              

Adjusted Operating Margin

       23.4     24.0     23.0     23.5

Net income:

          

GAAP net income

     $ 1,906,000     $ 1,769,000     $ 4,819,000     $ 3,899,000  

Stock-based compensation charges (1)

   (A)     744,000       451,000       2,023,000       1,533,000  

Strategic consulting and litigation costs (2)

   (B)     144,000       664,000       820,000       2,636,000  

Intangible Amortization (3)

   (C)     107,000       —         213,000       —    

Corporate separation payment (4)

   (D)     —         —         3,000       358,000  

Income tax impact

   (E)     983,000       713,000       3,215,000       1,859,000  
    

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP adjusted net income

     $ 3,884,000     $ 3,597,000     $ 11,093,000     $ 10,285,000  
    

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income per common share:

          

GAAP net income per share

     $ 0.03     $ 0.03     $ 0.09     $ 0.07  

Adjustments per share

   (A-E)   $ 0.04     $ 0.04     $ 0.11     $ 0.12  
    

 

 

   

 

 

   

 

 

   

 

 

 

Non-GAAP adjusted net income per share

     $ 0.07     $ 0.07     $ 0.20     $ 0.19  
    

 

 

   

 

 

   

 

 

   

 

 

 

Shares used to compute Non-GAAP adjusted net income per share - diluted

       54,631,407       53,262,075       54,263,258       54,699,207  
    

 

 

   

 

 

   

 

 

   

 

 

 

Reconciliation of Net income to EBITDA and Adjusted EBITDA:

   (F)        

Net income

     $ 1,906,000     $ 1,769,000     $ 4,819,000     $ 3,899,000  

Income tax provision

       1,070,000       858,000       3,603,000       2,252,000  

Depreciation

       621,000       562,000       1,811,000       1,660,000  

Intangible Amortization (3)

       107,000       —         213,000       —    
    

 

 

   

 

 

   

 

 

   

 

 

 

EBITDA

       3,704,000       3,189,000       10,446,000       7,811,000  

Adjustments:

          

Stock-based compensation charges (1)

   (A)     744,000       451,000       2,023,000       1,533,000  

Strategic consulting and litigation costs (2)

   (B)     144,000       664,000       820,000       2,636,000  

Corporate separation payment (4)

   (D)     —         —         3,000       358,000  
    

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

     $ 4,592,000     $ 4,304,000     $ 13,292,000     $ 12,338,000  
    

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA margin

       27.7     28.1     27.2     27.7


ZIX CORPORATION

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(Unaudited)

 

            Three Months Ended
September 30,
     Nine Months Ended
September 30,
 
            2017      2016      2017      2016  

(1) Stock-based compensation charges are included as follows:

              

Cost of revenues

      $ 78,000      $ 55,000      $ 226,000      $ 171,000  

Research and development

        98,000        63,000        276,000        215,000  

Selling and marketing

        234,000        156,000        670,000        460,000  

General and administrative

        334,000        177,000        851,000        687,000  
     

 

 

    

 

 

    

 

 

    

 

 

 
      $ 744,000      $ 451,000      $ 2,023,000      $ 1,533,000  
     

 

 

    

 

 

    

 

 

    

 

 

 

(2) Strategic consulting and litigation costs are included as follows:

              

Cost of revenues

        1,000        —          3,000        —    

Research and development

        52,000        —          55,000        —    

Selling and marketing

        1,000        —          2,000        —    

General and administrative

        90,000        664,000        760,000        2,636,000  
     

 

 

    

 

 

    

 

 

    

 

 

 
      $ 144,000      $ 664,000      $ 820,000      $ 2,636,000  
     

 

 

    

 

 

    

 

 

    

 

 

 

(3) Intangible Amortization is included as follows:

              

Cost of revenues

        50,000        —          100,000        —    

Selling and marketing

        57,000        —          113,000        —    
     

 

 

    

 

 

    

 

 

    

 

 

 
      $ 107,000      $ —        $ 213,000      $ —    
     

 

 

    

 

 

    

 

 

    

 

 

 

(4) Corporate separation payment is included as follows:

              

General and administrative

        —          —          3,000        358,000  
     

 

 

    

 

 

    

 

 

    

 

 

 
      $ —        $ —        $ 3,000      $ 358,000  
     

 

 

    

 

 

    

 

 

    

 

 

 

This presentation includes Non-GAAP measures. Our Non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. For a detailed explanation of the adjustments made to comparable GAAP measures, the reasons why management uses these measures, the usefulness of these measures and the material limitations of these measures, see Notes to Reconciliation of GAAP to Non-GAAP Financial Measures on the next page.


ZIX CORPORATION

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES OUTLOOK

 

     LOW      HIGH      LOW      HIGH  
     Three Months Ended
December 31

2017
     Three Months Ended
December 31

2017
     Twelve Months Ended
December 31,

2017
     Twelve Months Ended
December 31,

2017
 

Revenue:

           

GAAP revenue

   $ 16,600,000      $ 16,800,000      $ 65,500,000      $ 65,700,000  
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted net income per common share:

           

GAAP net income

   $ 0.02      $ 0.03      $ 0.10      $ 0.11  

Stock-based compensation charges

   $ 0.01      $ 0.01      $ 0.05      $ 0.05  

Strategic consulting and litigation costs

   $ —        $ —        $ 0.02      $ 0.02  

Intangible Amortization

   $ 0.00      $ 0.00      $ 0.01      $ 0.01  

Corporate separation payment

   $ 0.02      $ 0.02      $ 0.02      $ 0.02  

Income tax impact

   $ 0.03      $ 0.02      $ 0.08      $ 0.07  
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-GAAP adjusted net income

   $ 0.08      $ 0.08      $ 0.28      $ 0.28  
  

 

 

    

 

 

    

 

 

    

 

 

 

Shares used to compute Non-GAAP adjusted net income per share - diluted

     54,450,000        54,450,000        54,399,631        54,399,631  
  

 

 

    

 

 

    

 

 

    

 

 

 

This presentation includes Non-GAAP measures. Our Non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. For a detailed explanation of the adjustments made to comparable GAAP measures, the reasons why management uses these measures, the usefulness of these measures and the material limitations of these measures, see Notes to Reconciliation of GAAP to Non-GAAP Financial Measures on the next page.


ZIX CORPORATION

NOTES TO RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

USE OF NON-GAAP FINANCIAL INFORMATION

The Company occasionally utilizes financial measures and terms not calculated in accordance with generally accepted accounting principles in the United States (“GAAP”) in order to provide investors with an alternative method for assessing our operating results in a manner that enables investors to more thoroughly evaluate our current performance as compared to past performance. We also believe these Non-GAAP measures provide investors with a more informed baseline for modeling the Company’s future financial performance. Management uses these Non-GAAP financial measures to make operational and investment decisions, to evaluate the Company’s performance, to forecast and to determine compensation. Further, management utilizes these performance measures for purposes of comparison with its business plan and individual operating budgets and allocation of resources. We believe that our investors should have access to, and that we are obligated to provide, the same set of tools that we use in analyzing our results. These Non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. We have provided definitions below for certain Non-GAAP financial measures, together with an explanation of why management uses these measures and why management believes that these Non-GAAP financial measures are useful to investors. In addition, in our earnings release we have provided tables to reconcile the Non-GAAP financial measures utilized to GAAP financial measures.

ADJUSTED NON-GAAP MEASURES

Our Non-GAAP measures adjust GAAP Cost of revenue, Gross profit, Research and development expense, Selling and marketing expense, General and administrative expense, Operating income, Net income, Net income per share - diluted, and EBITDA for non-cash stock-based compensation expense, and strategic consulting and litigation costs to derive Non-GAAP adjusted Cost of revenue, adjusted Gross profit, adjusted Research and development expense, adjusted Selling and marketing expense, adjusted General and administrative expense, adjusted Operating income, adjusted Net income, adjusted Net income per share - diluted and adjusted EBITDA. We provide a reconciliation of these adjusted Non-GAAP measures to GAAP Gross profit, Operating income, Net income, Net income per share - diluted and EBITDA.

Our forward-looking adjusted Non-GAAP earnings per share information consistently excludes non-cash stock-based compensation expense. Additionally, the adjusted Non-GAAP earnings per share will consistently exclude litigation expenses and non-recurring items that impact our ongoing business. See items (A) through (E) below for further information on the current quarter’s reconciling items.

Items (A) through (F) on the “Reconciliation of GAAP to Non-GAAP Financial Measures” table are listed to the right of certain categories under “Gross profit,” “Operating income,” “Net income,” “Net income per share - diluted” and “EBITDA” and correspond to the categories explained in further detail below under (A) through (F).

(A) Non-cash stock-based compensation charges relating to stock option grants, restricted stock, and restricted stock units awarded to and accounted for in accordance with Share-Based Payment accounting guidance. See (1) on previous page for breakdown of stock-based compensation. Because of varying valuation methodologies, subjective assumptions and varying award types, the Company believes that the exclusion of stock-based compensation charges provides for more accurate comparisons to our peer companies and for a more accurate comparison of our financial results to previous periods. Additionally, the Company believes it is useful to investors to understand the specific impact of non-cash stock-based compensation charges on our operating results.

(B) Strategic consulting and litigation costs. See item (2) on previous page. The Company’s management excludes certain board-directed consulting costs and litigation expenses when evaluating its ongoing performance and/or predicting its earnings trends and therefore excludes these charges on our adjusted operating results.

(C) Intangible amortization costs. See item (3) on previous page. The Company’s management excludes amortization expenses associated with the acquisition of intangible assets when evaluating its ongoing performance and/or predicting its earnings trends and therefore excludes these charges on our adjusted operating results.

(D) Corporate separation payment relating to employment termination benefits agreement. See item (4) on previous page. The Company’s management excludes these costs when evaluating its ongoing performance and/or predicting its earnings trends and therefore excludes these charges on our adjusted operating results.

(E) The Non-GAAP adjustment to the tax provision represents the non-cash tax expense included in the GAAP tax provision, including the current period utilization of deferred tax assets created in previous periods. The remaining provision for income taxes represents expected cash taxes to be paid.

(F) EBITDA represents earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA adds back stock-based compensation charges and litigation expenses.